SUGAR BEET MARKET BEFORE A BIG CHANGE- Insights into Poland & Germany

The Sugar Beet Quota – European Regulations

For years, the European sugar and sugar beet market has been that of a specialist market, resulting from the wide range of interventions and regulations imposed on the market. Both sugar production and the buying-in price were subject to regulation. Such regulation has resulted in the lack of any significant change occurring in the market over the years. Additionally, the high economic value of sugar beet production and the sugar quota system have led to the crop being grown by a limited number of farmers.

Significant change for sugar beet production and the sugar markets in Europe is expected in 2017. From the 1st of October, the sugar quota system will be abolished, meaning that the minimum basic income guarantee for farmers, in the form of a minimum price for sugar beet, will cease to exist. This abolishment is the result of the European Union progressively withdrawing from its position as a market protectionist. Following the abolition of milk quotas, the next subject of market liberalization is that for sugar. The manner in which those involved – both growers and processors – will behave is dependent on developments in the European and global sugar market. Many forecasts predict an increase in demand for sugar in the coming years. According to SUCDEN data, sugar consumption will increase by 2,2% to 4,6% depending on the global region; the fastest growth of sugar consumption is predicted to be in Asian countries which are already the greatest consumers of sugar.

Insights into the Polish market

Sugar Companies in Poland

Sugar Companies in Poland all sugar companies operating in Poland have stated their intention to expand their production capacity in the next few years. This has been confirmed by recent investments in some production plants, e.g., the recently opened sugar stores in Środa Wielkopolska which provide a facility capable of storing 40 thousand tonnes. The expected production increase will require the securing of adequate raw material, which could be obtained by existing growers increasing their cultivated sugar area; furthermore, these growers often have an existing relationship with sugar processors and experience in sugar cultivation. Alternatively, those who previously cultivated sugar beet could be encouraged to go back into production and growers completely new to sugar beet production could also enter the market. Much will depend on how the sugar companies behave, to what extent they will encourage current producers to increase production and how intensely they attempt to establish new producers. Due to the logistics of crop transportation, the best solution is to develop production within a defined distance from a processing plant. Some sugar refineries have already announced that they are going to encourage current growers to expand their crop areas. There are, however, barriers to this plan due to the limitations of crop rotation. This provides the opportunity for farmers to enter sugar beet production.

A key factor influencing how the market will develop is, undoubtedly, the buying-in price. According to sugar processors, the price per tonne will range from 21 to 26 Euro for 2017/2018.¹ Such prices should guarantee sugar beet production’s profitability at a typical yield of between 52-55 t/ha.²

Crop Protection in Poland

In this context, the next few years may see an expansion in the area of sugar beet in Poland. Any growth in the production of sugar beet inevitably means a growth in the inputs used, including crop protection products. Presently, the market for sugar beet pesticides in Poland is the fifth largest in terms of value (following cereals, oilseed rape, orchard crops and maize)³.

Due to the characteristics of the crop, as much as 86% of the value of crop protection products for sugar beet are herbicides, with fungicides and insecticides accounting for 13% and 1%, respectively. The crop protection programme for sugar beet production has not changed over the years. Polish growers make an average of 3,6 herbicide treatments, with these usually constituting a tank mix. The average cost of herbicide protection in Poland in 2016 amounted to ca. 700 zł per ha.

In comparison, in Czech Republic and Slovakia, farmers use a similar number of applications, but use a larger number of chemicals, resulting in a larger scope of tank mixes used and, inevitably, higher crop protection costs.

Insights into the German market

How will German sugar beet growers react following the end of the quota? The Kleffmann Group looked into this question in summer 2016 by interviewing 800 German sugar beet growers.

From the interviewed farmers, 44 percent intend to extend their cultivated sugar beet area as a reaction to the changing market conditions, while only 9 percent planned a reduction of their cultivated area. A reduction of the sugar beet area was an intended option for 7 percent of the farmers. 30 percent of the interviewees did not anticipate any changes on their own farms as a result of the abolition of the quota (Fig.2).

Economic Feasibility in Germany

Despite the new market conditions, the sugar beet growers view their future in a mostly positive light. 60 percent of the interviewees are convinced that with the end of the quota, sugar beet cultivation will remain economically feasible. However, 1 in 10 farmers are of the opinion that the sugar beet cultivation will no longer pay off (Fig. 3).

The data demonstrates that the end of the sugar beet quota will lead to an increasing concentration of the German sugar beet cultivation to regions which have, thus far, had a higher level of sugar beet cultivation.